Sundance Says Hanlong Takeover May Fail as Deadline Missed

The reception desk at the headquarters of Sichuan Hanlong Group is seen in Chengdu. Source: Imaginechina

March 26 (Bloomberg) -- Sundance Resources Ltd., seeking to
develop an iron ore project in Africa, said its $1.19 billion
takeover by Sichuan Hanlong Group may be scrapped because the
Chinese company will miss a deadline today to provide details of
how it would fund the deal.

Closely held Hanlong, whose billionaire chairman may be in
police custody after going missing this month, will now hold
five days of talks, with both companies able to end the deal,
according to a Sundance statement. The Perth-based company may
require an investment of $4.7 billion for its Mbalam project,
straddling the border between Cameroon and Republic of Congo.

Sundance said March 21 it hasn’t been able to reach Liu Han
and the official Xinhua News Agency reported last week that a
man with the same name is under investigation for sheltering a
murder suspect. Sundance, whose shares have plunged since last
year, may struggle to find alternate funding to develop the mine
with iron ore prices forecast to drop in the medium term.

“It’s been a very long process that has failed,” said
Evan Lucas, market strategist at IG Markets Ltd. in Melbourne.
“The underlying commodity is moving in the wrong direction.”

Liu Han’s disappearance may scuttle a second deal as well:
General Moly Inc., the Lakewood, Colorado-based owner of two
molybdenum mining projects in Nevada, suspended work on a $665
million loan that was to be arranged by Sichuan Hanlong after a
report that Liu Han had been detained.

Missed Deadlines

A probe of Liu Han could lead to the highest-profile case
against a Chinese businessman since Xi Jinping and Li Keqiang
took control of the Communist Party in November as part of a
once-a-decade leadership transition. Xi and Li were named
president and premier this month, both promising to get tough on
corruption.

Hanlong won’t deliver a term sheet to acquire Sundance by 5
p.m. in Perth today and the deal can be ended if further talks
don’t lead to an agreement by April 3, Sundance said in a
statement. An earlier deadline for a term sheet was extended in
December. Hanlong reduced its original October 2011 bid last
year after iron ore prices plunged. The deadline for the term
sheet was extended when China Development Bank Corp. failed to
agree on a loan.

“In light of this advice from Hanlong, Sundance and
Hanlong are required to enter into a five business day good
faith consultation period,” Sundance said in the statement.
“If the parties fail to reach an agreement during that period,
either party may then terminate,” the deal, it said.

Police Investigation

A March 22 Xinhua report posted to the website of China’s
Ministry of Public Security said the murder suspect who had been
given shelter was Liu Yong, from the city of Guanghan in Sichuan
province. The article said his brother, Liu Han, was being
investigated for harboring him, without identifying Liu Han as
Hanlong’s chairman.

A woman at Sichuan Jinlu Group’s president’s office, who
would only give her surname Long, said the man being
investigated by police was the company’s chairman. Sichuan Jinlu
is part-owned by Hanlong and its president is Yang Shoujun.

Hanlong Chairman Liu Han’s residence is also in Guanghan,
according to a 2003 statement by Sichuan Jinlu. In a March 20
statement, Jinlu said it wasn’t able to get in touch with him.

Xinhua reported in 2009 that a man named Liu Yong incited
gunmen to kill three people at an outdoor teahouse in the
Sichuan city of Deyang.

Assassination Attempt

Liu Han’s past also includes escaping an attack by hired
gunmen. Xinhua reported in 2006 that a businessman from Sichuan
province named Liu Han was the target of a 1997 assassination
attempt by another businessman who blamed him for the loss of
more than 90 million yuan. A hit man hired by Yuan Baojing tried
to kill Liu Han and failed, according to Xinhua. Yuan was
executed in 2006 for killing another man who threatened to
expose the murder plot, Xinhua reported, without identifying Liu
Han as Hanlong’s chairman.

Attempts by Sundance to contact Liu Han have failed since
at least March 21. Sundance Chairman George Jones couldn’t be
reached for comment when contacted on his mobile phone today.
Paul Armstrong, of Read Corporate, an outside spokesman for
Sundance, declined to comment yesterday.

Sundance’s shares were suspended March 19 after trading in
Sydney at 21 Australian cents, below Hanlong’s offer of 45 cents
a share, signaling investors don’t expect the deal to succeed.
Hanlong, which holds about 14 percent of Sundance, in August cut
its bid for Sundance by 21 percent to 45 cents. The shares have
fallen more than 46 percent since Nov. 30.

‘Terminate the Deal’

“They should terminate the deal,” Peter Strachan, a
resources analyst at Perth-based StockAnalysis, said in a phone
interview yesterday. “Getting rid of that uncertainty will be
positive for the company.”

Liu Han was ranked the 230th richest person in China with
wealth of 6.3 billion yuan ($1 billion), according a list of the
1,000 richest people in China published September 2012 by the
Shanghai-based Hurun Report. That was up 26 percent from 2011,
Hurun said. Liu Han was a member of the Sichuan province’s
political consultative conference, a government advisory body,
according to a notice in 2009.

“It is possible they will make an example out of it to
convince the public that even multimillionaires are not immune
to the new spirit of fighting corruption,” said Willy Wo-Lap
Lam, an adjunct professor of history at the Chinese University
of Hong Kong. “It may be one of these politically well-timed
cases to illustrate the party’s determination.”

Detained

Liu Han and his ex-wife were in Beijing during the National
Party Congress this month and were detained after it ended,
according to a report in Shanghai Securities News, which cited
unidentified people familiar with the matter.

Sichuan Hanlong media official Wu Shijun declined to
comment when reached by telephone yesterday. A call to the
Ministry of Public Security in Beijing rang unanswered.

In the absence of an agreed extension, failure to deliver
the term sheet today will trigger the five-business day good-faith consultation period, followed by a 10-day termination
period in which both parties may end the deal, Sundance said
March 20. The two companies had met and they remained in
incomplete and confidential talks, Sundance said March 22.

“The banks I don’t think would find themselves in a
position to do any lending,” Peter Rudd, resources and mining
manager at Altitude Private Wealth in Melbourne, said by phone.
The deal going ahead “seems remote with the recent
circumstances that have developed,” he said.

Iron ore prices may decline to an average of $110 a metric
ton in 2014, according to analyst estimates compiled by
Bloomberg. They have averaged at $148.90 a ton this year. Mining
companies deferred expansions and delayed projects on
expectations that prices have passed their highs, after economic
growth began slowing in China, the biggest buyer of metals.